Note to Facilitator: This session reviews in detail a Direct Cash Flow Statement. At the end of the session the Indirect Cash Flow Statement is mentioned but not in detail. Depending on time, participant interest, and knowledge the indirect cash flow statement can be expanded or just referenced.
Ask
What is a cash flow statement?
What valuable information does a cash flow statement provide?
The cash flow statement is a flow statement that represents the inflows and outflows of cash during a specified period.
The cash flow statement summarizes each transaction or event that causes cash to increase (sources of cash) or decrease (uses of cash).
Describe that a cash flow statement classifies the inflows and outflows of cash into three major categories.
Operating Activities Investing Activities Financing Activities
Ask what each of the categories is? Have a prepared flipchart with the following information:
Cash Flow Statement Categories with Definitions
Operating Activities, the cash receipts and payments related to the MFI’s ongoing provision of financial services, including lending and deposit services; Investing Activities, the cash receipts or outlays for acquiring or selling (B10)
Fixed Assets or financial investments; and
Financing Activities, the borrowing and repayment of borrowings, the sale and redemption of (B22) Paid-In Capital, and the payment of dividends.
Show overhead 2.6 Classification of Cash Receipts or Payments or a flipchart that has a similar table
So that participants understand the differences of the classifications ask the group to list examples of receipts and payments for each classification. Responses that can be included are on the following page.
Classification Receipts Payment
Operating Activities
Principal repayments
Interest and fee receipts on the (B4) Gross Loan Portfolio and
investments
Other receipts for the provision of financial services
Funds received from accepting deposits
Loan disbursements (B2) Purchase of Trade Investments
Interest and fee payments Payment to Personnel or for (I18) Administrative
Expenses Taxes paid
Funds repaid to depositors Investing
Activities
Proceeds from the sale of an investment
Proceeds from the sale of (B10) Fixed Assets Purchase of (B8) Other Investments Purchase of (B10) Fixed Assets Financing Activities
Funds received from borrowings Receipt of (B22) Paid-In Capital from the sale of shares or membership
Principal repaid on borrowings
Repurchase of (B22) Paid-In Capital
Payment of dividends
Explain that there are two ways a cash flow statement can be constructed Direct method that shows all the cash transactions in and out of the Cash and
Due from Banks account.
The direct method for preparing a cash flow statement is the most intuitive of the methods. It reconstructs the income statement by tracing the movement of cash and adds other events not included on the income statement that have caused an inflow or outflow of cash.
Indirect method deduces the movement of cash based on the changes in specific income statement and balance sheet accounts.
It begins with the (I28) Net Income (After Taxes and Before Donations) and then adds back all other sources of cash (such as loan payments) and subtracts all other uses (such as loan disbursements) that can be deduced by changes in balance sheet accounts.
Add that both methods can be used for this Framework. Construct, Define and review a direct cash flow statement.
1. Pass out to all participants 1 or 2 cards from material 2.7 (Constructing a Cash Flow Statement) and a copy of overhead/handout 2.8 Direct Cash Flow
Statement Template. Each card has one term written on it from either operating activities, investing activities, or financing activities. Depending on how many participants are in the training, each person should get at least one card. If some
2-18 MEASURING PERFORMANCE OF MICROFINANCE INSTITUTIONS: A FRAMEWORK FOR REPORTING, ANALYSIS, AND MONITORING
people need to get more than one card, make sure the cards they have are from the same category. Make sure that the cards are large enough so that people can read them from the back of the room.
2. Instruct participants to group themselves according to what “category” of account they have. For instance, operating, investing, or finances activity. 3. Once all participants are in their appropriate category, tell them to arrange
themselves according to how a cash flow statement is constructed. 4. Start with the operating activities group. Ask them to describe how they
constructed this category. Write this on the overhead 2.8 Direct Cash Flow Statement or on a prepared flipchart.
5. Ask the large group what they think about the ordering of this account. Change the account ordering on the overhead or flipchart when/if appropriate.
6. Ask the investing activities group how they constructed this category. Write this on the overhead 2.8 Direct Cash Flow Statement or on a prepared flipchart. 7. Ask the large group what they think about the ordering of this account. Change
the account ordering on the overhead or flipchart when/if appropriate. 8. Finish with asking the finances activities group how they constructed their
account. Write this on the overhead 2.8 Direct Cash Flow Statement or on a prepared flipchart.
9. Ask the large group what they think about the ordering of this account. Change the account ordering on the overhead or flipchart when/if appropriate.
Show overhead 2.8. Starting with the first account of the direct cash flow statement Cash Received from interest, fees, and Commissions on Loan Portfolio, ask the participant with that card to describe the account in more detail . Ask other
participants for additions or corrections to the definition. Ask the participant to cross reference the account. Tell participants the cross reference if necessary. Write a brief definition and the cross reference on the overhead/projector. Proceed with working your way through the other terms until the Cash Flow Statement is complete.
Show and handout overhead/handout 2.9 Sample Direct Cash Flow Statement. State that many of the accounts used for the indirect cash flow statement are the same as those in the direct cash flow statement.
Show overhead 2.10 Indirect Cash Flow Statement.
Review the accounts of the Indirect Cash Flow Statement, specifically identifying the cross references to the Direct Cash Flow Statement.
Tell Participants they will work on their case study in their same groups as before. Distribute
Handout 2.12 Micro MFI Cash Flow. This handout has 3 pages: an instruction page, Micro MFI Cash Flow Data, a blank SEEP Framework Cash Flow Statement. Also included is a completed SEEP Framework Cash Flow.
Describe
To participants that in their teams they need to review the information provided. Based on this information they need to map Micro MFI’s cash flow financial
information into the SEEP Framework cash flow. This task requires identifying what account information from the institutions previous statements needs to be relocated into new accounts for the SEEP framework format. Participants need to create a cash flow statement. Participants have 30 minutes to work on this.
Review activity in large group. Depending on time there are a few ways to process this activity.
1. Option one: The facilitator can show an overhead of the completed cash flow statement. The facilitator can walk participants through the mapping of the cash flow through question and answer.
2. Option two: Using a blank overhead of the cash flow statement the facilitator can ask one group at a time for specific information. For example “Describe the financial data for cash flow from operating activities. Write this information into the overhead. Continue asking each group for specific pieces of information to fill in the cash flow statement.
Ask
Participants what was difficult/challenging about mapping the information? How can this be done efficiently in their organizations?
Note To Facilitator: At the end of the day there is time allocated for participants to continue with inputting data into the spreadsheet tool.
STEP 5: DISCUSSION LECTURETTE 40 minutes Handout: 2.13 Sample Portfolio Report 2.14 Micro MFI Portfolio Report Overhead: 2.13 Sample Portfolio Report